What are partnerships? How do they help people, organizations and other entities? How do they differ from other types of arrangements? These are just some of the questions that this article seeks to answer.
A partnership is basically an agreement where two or more parties, called partner organizations, agree to collaborate on a common interest in order to pursue their mutual goals. The parties in a partnership can be private firms, individuals, private interest-based associations, corporations, educational institutions or combinations thereof. Any one of the parties to a partnership is considered its partner and is entitled to the same proportion of the profits and losses resulting from the venture as the other party is entitled to. In order for a partnership to come into being, there must be two or more legally recognized and established parties.
The most familiar form of partnerships that are known today are the ones that result from buyouts. Buyout agreements are normally drawn up by sole proprietor members of the partnership who are selling their companies to another firm for a price that is higher than what the other firm will pay for the same company. The profit split between the two firms is then given to the owners of the original companies. Such transactions are referred to as “partnerships”. In order for a partnership to become formal and operational, it needs to be registered under the appropriate laws. One example of a partnership that has been duly registered is the New York Stock Exchange, or NYSE, which handles trading shares of hundreds of thousands of business entities around the world.
Another form of partnership that has been made popular by the corporate world is limited partnership (LP). Limited partnerships are a set of agreements wherein the partners actually share in the benefits of the partnership. The benefits here are not always tangible but are rather the ability to have limited liability in the venture. Limited partnership shares are also typically less expensive than share ownership because the costs of registration, transfer fees, etc.
Partnerships can also come in forms of limited liability partnerships (LLP), also known as ‘pass-through’ partnerships. An LLC is one where the partners actually bear the legal liability for any damages that occur, unlike partnerships where there is no such liability. An LLC partnership also has the advantage in the formation of unlimited partnerships, as each partner can easily add on additional partners if required. But limited partnerships need to have an accountant who will conduct the day-to-day accounting operations and the maintenance of the books and records. If any member of the partnership neglects his/her duties, the partners will be individually liable for the penalties or losses incurred.
There are several other types of partnerships, but these four types seem to be the most common. There are other types of partnerships including limited liability partnerships (LLP), corporation, limited liability company, partnership, and limited liability partnership (LLP). It may seem very difficult to understand all of these different types of partnerships, but it is beneficial to know at least the four types and the way they affect your business. To make the right choice, it is best to consult with a corporate attorney who specializes in tax law. He/she will be able to help you understand your options and help you determine the best type of partnership for your business.